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Antiquated debt recovery procedure must be abolished

The case of Hull v Campbell serves as a reminder of an outmoded debt recovery procedure that needs to be modernised.

The Bankruptcy and Diligence etc (Scotland) Act 2007 (“the Act”) is an attempt to modernise debt management. The enforcement aspects of the Act were designed to modernise and improve the legal processes by which creditors can take action against defaulting debtors. One such aspect is the abolition of "adjudication for debt" – a rarely used process described by the Scottish Law Commission as archaic and cumbersome – and its replacement with land attachment. This has not been brought into force, however. Hull v Campbell is a rare example of a case in which adjudication for debt has been used.

Adjudication for debt is a type of court action which gives a creditor a right in security over specified land owned by their debtor. It prevents the debtor from selling the land. If the debt remains unpaid 10 years after the adjudication is put in place, the creditor can apply to the court for an order transferring ownership of the land to the creditor, who can then sell the land to satisfy the debt. A particularly anachronistic feature of the 17th century legislation which still applies to the process is that, if the value of the land is higher than the value of the sum due, there does not appear to be any obligation on the creditor to pay the surplus to the debtor. The creditor could receive a windfall.

If the relevant provision of the Act was in force, land attachment, like adjudication for debt, would give a creditor a right in security over land owned by their debtor. Crucially for the creditor, land attachment would enable the land to be sold in a much shorter period of time than 10 years. If the debt remained unpaid 6 months after the land attachment was put in place, the creditor could apply to the Sheriff Court for warrant to sell the land. The process has protections for the debtor and any co-owners and occupiers of the land where the land is a sole or main residence, but the procedure would still be relatively swift.

Hull v Campbell is an example of a case in which the value of the debtor’s land exceeded the value of the debt plus interest and expenses. The central issue in the case was whether the court could only grant an order transferring ownership of the land to the creditor, or whether the court could include in its order a requirement that the creditor pay the surplus in value to the debtor. The judge found that he could include such a requirement. A just result, but this case, in which the parties had to argue about interpretation of 17th century legislation, is a clear illustration of the anachronistic nature of adjudication for debt. The sooner it is abolished the better.

It remains to be seen, however, whether the relevant provisions of the Act will be brought into force in their current form. The current Scottish Government opposed the introduction of land attachment when they were in opposition. The First Minister has indicated that he wishes to increase the protections for the debtor. It seems likely that some form of land attachment will be introduced, but when, and exactly what form it will take, are not yet known. In the meantime, creditors wishing to look to the debtor’s land to recover what they are owed are stuck with the archaic adjudication for debt.

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